I was taken to task recently by one of my readers who suggested my bullish analysis for oil was well off the mark and in his opinion it was returning to $37 per barrel. While I have no issue with anyone putting forward an alternative view and in the longer term this indeed may happen, what I do find worrying is when such opinions are just that – an opinion not grounded in any fact, either fundamental or technical. Trading with an opinion, that gold MUST go up for example due to its scarcity etc, or a stock MUST go down because a company has failed in some way is dangerous in the extreme. In my humble opinion, never trade with an opinion, only trade based on what the technical, fundamental, and relational analysis is telling us along with using multiple timeframes. So, where is the price of oil heading next?
If we start with the daily timeframe, over the last few days we have seen several strong signals confirming the development of the current bullish trend. First, the price of oil breached the resistance denoted with the red dashed line of the accumulation and distribution indicator just below $73 per barrel which is a strong level. With this level cleared, the volume on the VPOC histogram then becomes key, and as we clear $74 per barrel this falls away sharply and up to a low volume node at $77 per barrel where I expect it to pause in its current upwards rush. Third and last, volume and price were in solid agreement yesterday with excellent volume on a wide spread candle. In addition, the current bullish move has also been signaled and confirmed on the trend monitor indicator at the bottom of the chart which is solid blue.
Moving to the weekly chart, the price here is also approaching a low volume node at $78 per barrel following the break higher from the VPOC itself anchored at $41 so good news and validating what we are seeing on the daily chart. Note too, last week’s price action, with the fall and subsequent recovery creating the deep wick to the lower body on excellent volume confirming strong buying in the market. Note also the two bar reversal of late August which was the catalyst for the current move.
And so to the monthly chart which gives us a longer-term perspective and there are several key elements here. First, note the buying of last month, which helped the commodity hold above the solid platform of support at $66 per barrel and denoted with the red dashed line of the accumulation and distribution indicator. Second, note developed price-based resistance at $83 per barrel again with the red dashed line. Finally, notice how the VPOC histogram volume falls away as we progress towards $90 per barrel and particularly how it falls away around $80 per barrel, a factor which will become more relevant as we progress higher in the longer term.
By Anna Coulling
Charts from NinjaTrader and indicators from Quantum Trading
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